Cost Avoidance vs Hard Savings

The number one procurement metric is cost savings. We frequently hear that this is the only metric every CFO cares about.

In procurement, “hard saving” is generally defined as “a reduction from prior year spend for the same or similar item that is included in normal ongoing expenses.” Many procurement organizations very narrowly define hard-dollar savings to avoid the risk of overstating their measurable P&L contribution to the organization. These narrow definitions rarely include savings achieved on capital projects or from the adoption of new technologies. Savings on goods or services where a clear prior year equivalent cannot be reasonably identified for the purposes of cost comparison are also often excluded.